for the first time in my he were, secretary clinton said publicly, well, it's understandable that we put this on the back burn err. we've got a lot of issues on our plate in the region. when america doesn't push for turkey's accession or continue to push for you are the can key's european or yenation -- orr orientation, that's a fundamental challenge to the transatlantic relationship. ..

>> we have two approaches to american leadership in europe. we tend to get in there, direct traffic, or we say, you got it, we're busy. you figure out what to do. we have to have the middle path that allows europe to lead, but with american interaction. that's the middle road. that's the new american leadership we have to bring to the transatlantic relationship and not just re-commit to the values, but operationallize those values, particularly in the enlargement agenda whether it's the partnership countries and beyond. that's the fundamental challenge. it is a bipartisan purpose, and i want to -- you highlighted the differences perhaps of democrat and republican. our policy is best when it is bipartisan. enlargement, the nato enlargement point has been successful because it's been bipartisan.

this7 it has to be bipartisan. with that, thank you so much. >> thank you, ms. conley. the floor is yours. >> i'm not here as a member of congress for seven terms nor as a former under secretary of state or the defense, but here as the vice chair of the atlantic council, so i'm not speaking for the administration in any way. we've known each other for a very long time, and heather, i read many of your pieces and very much appreciate a lot you've said. i think i may be the only person in the room who practiced the dark arts of politics and actually been elected. [laughter] let me tell you from my perspective when the obama administration came into office, we found ourselves with a number of significant situations that

immediately caused a pause to prioritize and decide where to go first. every administration have to do a number of reviews, about 11, and the administration was went off to do that, and in this case, many of them were done for the first time with both the state department and the defense department including the nuclear posture review and the bmd review with the state department as part of the team, not just reviewing it after it was done hoping to get something changed. that was clearly a decision that president obama, secretary gates, and secretary clinton made. i think those producted reflected a sense of hard and soft power for the first time, and i think those were very good. we found ourselves with two situations, vis-a-vis europe. number one, we had not a lot of work done by the previous administration to deal with the fact we had a s.t.a.r.t. treaty that was going to expire on december 5th of 2009.

secondly, we had a missile defense proposal by the bush administration, hated by the russians, and almost hated by the europeans because they, i think, understood it was not to protect them and it was to protect the united states from europe. they were basically and inconveniently at the wrong place at the wrong time and subject from -- to threats from russia if we made that deployment. the secretary put together a team to look at beginning to negotiate a new treaty. the decision was not to extend it, but get a new s.t.a.r.t. treaty. at the same time, a decision was made with the white house to use the negotiation of a new treaty to reset the relationship. a relationship characterized by mutual destruction, no longer the posture we have between ourselves and former soviet union, russia, towards a more

different, more cooperative relationship that is mutually ensured state. that success of getting the new treaty and disescalating tensions was important and also got us a relationship with russia that enables us to work closely on things with iran, more successfully clearly than syria and libya, but the iran and north korea situation, we have a much more, i think, respectful and successful relationship in getting things done. we also were able to announce in september the ballistic missile defense review which included, because the president was very insis tent, that we were changing the characteristic of what exactly was going to happen with the third side, and 245 review, as many as you know, culminated in the announcement of the adaptive approach, based on a different system, and much more tested system called the sn3 rocket that we were going to

move it ashore that we were going to deploy much faster, actually last year in 2011 to protect europe, and we were going to go to nato and get a change in the mission so it was not just point defense, which was to protect troops in a certain area, but the difference between having an umbrella for one person and academy for the whole room. our decision was another commitment, a much more it 2* -- 21st century commitment to deploy into the mediterranean, the sullivans, and other ships follow on to get four agreements done in one year with poland, romania, turkey, and with spain to take four more, and to deploy the radar by the end of 2011. that is an enormous, enormous set of circumstances to get nato to change its mission at the

lisbon submit in 2010, deploy a system to detect threats now from the pleas, and work with the -- middle east, and work with the russians on the missile defense cooperation. in the spare time, we got a couple other things done. i would say on the political side, you know, i spend a lot of my time in russia and with my european colleagues, and i think that the turbulence in the channel of the relationship has very limit to do, i think, with, in my opinion, with questions as to whether we are still in love and whether we still want to stay together or not. i think the real issue is how do we manage together in a time of shrinking resources and a time of other distractions real problems, both to security and economic security, real security and economic security, and how do we do it in a way that is reflective of the fact there's an imbalance in the relationship for a very, very long time. president obama is not the first

president to face the fact that our european and nato allies are not contributing at the 2% that we hoped. i think every president since perhaps kennedy has been dealing with that. this is nothing new, and no president has been successful in getting anybody to change the way they are doing things which is to decline the defense budgets. in our case, i would say the biggest problem we have is not the question of whether we're going to decrease the defense budget. i want to know why the heck we're decreasing the state department budget. that's the biggest threat to us right now. we're going to have decreases in the defense department budget. of course we are for a lot of reasons including the fact we've been operating two wars on a credit card for the last ten years. why are we decreasing the budget of the state department? why are people not lev at a at - hesitating about that? that's the problem. whether you call it soft power, smart pour, hard power, i don't

care what you call it, we still have to pay for it, and we have a decreasing ability in the congress to understand that a sign of patriotism isn't to have a ribbon on the back of your car, begin every speech talking about how much you praise our fabulous military. we all do. that's not a default position, but should be sincere, but that we have to have a balanced foreign policy that includes a real stick, but also a real megaphone, and so we had a crisis last year, and we're going to have a crisis again in the state department budget. i don't know of many people that have written about it in a way that compels people to understand that we're taking people off the field. we're taking prized diplomats, the ability for us to fund consuls, everything but to remove wire fences so far out of

town that we're so interested in protecting ourselves. it's a crisis of a relationship when we can't be in the middle of town where people can actually get to us and where we can't fund having the best americans to project american soft power in those places because we've decided that fewer is better when it comes to diplomacy. that's not a sustainable situation for us. now, i appreciate very much that heather said the word "bipartisan" four or five times. foreign policy should be nonpartisan. we have too many people on both sides of the aisle, but on the political campaign, use anything they can find to whack anybody, and all it does is turn everybody off. you don't have anybody that's really paying attention enough to pay attention. you know, i told even my former constituents, i'm blessed to think that i've been told that my constituents in california

would still elect me. the nice news is that nobody can afford me. [laughter] in many places in this country, i don't know who wants to work for the american people. talk about an absentee landlord. i was lucky in my district in california, two nuclear labs, and 70%-80% of the vote. i have colleagues that come to the congress with 30%-35% of the voters showing up. they gent the same -- get the same vote i do, and the american people would rather watch entertainment tonight by and large than the news hour. you don't have to take a test to vote, but you should be informed and hold people accountable. for too many years and for too long, we've had partisanship going into foreign policy and national security affairs to the detriment of everyone. kurt and i have known each other for a very long time, and we were concerned we'd be on a pam

today and it would be boring because we say, yeah, you know, i agree with her or him, and now i absolutely agree with heather too. [laughter] you know, you may have to take your no-doze any moment now, but it should be nonpartisan on foreign policy and security, increasing the state department budget, not cutting it, a balanced approach to work with our friends, but we have to work with our friends about things that are relevant, and while we may have looked like we were busy in 2009 and early 2010, we negotiated a state of the art treaty with the russians on one of the most important issues in the new s.t.a.r.t. treaty. we are taking weapons down to keep the commitments. we are actually working on many, many different things. we used that to reset the relationship to get their help on iran and north korea, maybe not on syria or libya, but it's a much better relationship. we believe we have to move from mutually destruction to mule

chewablely assured stability. we have to identify a sweet spot on a number of issues where we have a common view, assessment on the threat, common platforms to cooperate, and where we can find a way to deescalate what's a tension-ridden, arms control race characterized relationship where tensions cause me to build an 11-foot ladder, and frankly, we can't afford to do that anymore. it's an enormously complicated situation. i think on balance our european friends and allies believe the united states a is at at table and working hard, trying to deal with increasing problems on the financial side of things, we're trying to work together to get economies balanced and get people back to work in a very big world where the europeans are the number one trading partners. we are intertwined, but domestically here at home,

recovering politician, people better start paying attention because this is a democracy that is not a sideline game. it is a representative democracy which means people have to suit up, sit up, and vote, and we're losing that battle, and wiewr losing that battle, unfortunately, i think, because if there's more cynicism because it appears to be chic, then there is really an imperative for people to show up, but part of it is, you know, the sense of partisanship so i think if we can get to where heather wants to be, which is bipartisan national security and foreign policy, that would be great. my vote is for non partisan, getting ourselves to a place -- because we agree so very, very often unless we don't take our medication on time, we are really capable of doing that. if we project that face and that voice to the rest of the world, they would take a huge sigh of relief, and i think then we would actually be doing

everything we can to preserve our democracy. >> thank you very much. >> you're welcome. >> so does your message then mean that there are not genuine differences that are being put forth to the american voters who will, after all, have to enter a booth and choose one of the parties; right? i mean, there's budgets proposed and counter budgets, and the choice is quite stark between either robust international role or a quasi-isolationist position. i don't think he had no one in mind when he said that. >> i won't speak for my friend, but the american voter is not voting on foreign policy or national security in november. they are o oblivious to it, and

it's going to be about jobs and their sense of our own well-being. there is going to be a piece of it that's going to be about appealing to people's sense of aspiration, and there's going to -- people that are upset and are going to be turned off by different parts of the rhetorical battle that we're going to be hearing will stay home. the enthusiasm gap is my biggest crch for what we -- concern for what we have going forward in november, and i think, you know, in many ways there is a laziness about the facts. for the same people, my former colleagues, that pitched a fit about the debt ceiling and created a big problem with that that got us degraded, you know, in the financial markets just a few moths ago, they are preaching from a bar stool. deference from a bar stool. they didn't care in the bush

administration while we went to war on two credit cards, ran up debt, playing deficit games all day long, and so nobody's called them on it, and that's what the tact of a good politician is can you do it eat get away with it, and apparently, the answer is yes. >> let me chime in because i agree. i don't think foreign policy pushes a single vote in the election. no one votes on that. while you may see people make an effort to use foreign policy in the election, i think -- >> weak. >> yeah, yeah. you may see that. it's not serious. >> no. >> i mean, it's -- it's trying to just calculate where can i get political advantage if i say something that way and it's not really serious. the difference i drew on those looking to have a strong american role in the world, resourced appropriately across

the full spectrum of things, both parties want to see that, and when i talked about those who feel we can't afford that anymore, we've got to cut, pull back, and we're in both parties who believe that. i'm not disparaging the second view, although i don't share it, it's a legitimate point of view, too, that people are worried where we are and how to pull back. we can't afford to do that because of the costs that then follow for the country abroad. that's really the intellectual debate that's out there, and it's really not the partisan to date in that respect. i would say so i didn't see anything in terms of individuals that way. when you do think about foreign policy and the election, the thing that i would really exact both parties or both candidates to lay out in the course of the campaign is kind of that ground work they look at for the world.

what do we see out there? how do we see ourselves? how do we want to engage in that? that may offer a breath of a choice between candidates on that. there could be difference in tone and style on that, but i think you'll see in both cases a fairly traditional, engaged, robust american foreign policy articulated from both sides. heather, there may be more difference in just tone and style; right? if governor romney proposes restarting s.t.a.r.t., resetting the reset, does this have any consequence? is this really subject of non-partisan or bipartisan consensus? if budget cuts are walked back, talking about capacity in missile defense and the limitations on american's ability to project power, is this really just about style and tone? >> well, i think in part it will be.

i agree that foreign policy in the campaign is opportunistic and headline driven. i think the foreign issues that impact the economy, and this is where the sovereign debt crisis will, i believe, you know, and we pray not, but the worst case scenario, that, my friends., will have a direct impact on the election, and that is europe. in fact, i was briefing parliamentary group talking about the debt crisis, and one said wouldn't it be ironic if europe is the reason president obama doesn't get re-legislated when the economic situation becomes difficult and that's what drives that, and wouldn't that just be, you know, ironic? i said, well, but it speaks to how closely interconnected we are that how europe goes is how we go, and how we go in 2008, very much how europe goes. we do not have the luxury of saying, well, that's europe's

problem, europe fix it is. america, that's your problem, you fix it. we're in this together, and we have to find common solutions. iran is another issue. whether it's the price of oil or the stability issue, it impacts the american economy. where foreign policy intersects with policy issues has implications. russia has become a touch point in the election with governor romney noting that russia was the greatest geopolitical fault, and i think even as people saw secretary powell's interview, a lot of head scratching on that one. i think it's speaking to, again, that this is a difference of opinion from the bush administration to the obama administration on missile defense, on the approach to russia, on arms control in many ways, but, you know, again, i think you'll hear from the romney campaign a very strong

focus on strengthening our relationship with central europe making sure that's a strong part moving forward, and making sure we're together understanding, changing the developments seen in russia. this is an issue that transatlanticly we have to say absolutely in lock step. it's important on messages and messaging to the pote soviet space. it's going to be critical. we have to get in great alignment. there's going to be differences on this issue, full stop, but, again, the larger strait ji moving toward is making sure we're closely tied with europe on that approach. >> turn that period into a colon. >> okay. >> what does a republican administration do differently with regard to the eurozone crisis? different kinds of intervention? if president obama's depicted now as sort of hectoring the

european about building a greater fire wall rather than focusing on the stray -- strategic goal and how is it pursued differently? >> everybody wants euroto resolve the crisis quickly, be back, and be a productive economy and the global economy to grow, and europe is a critical part of it. that's non-partisan, bipartisan, all in great unison. the problem, i think, with the debt crisis is it's a dim reflection of ourselves here in the united states, and that's why we have a hard time looking at the mirror. politically, there's something here for everybody. if you are a deficit or debt hawk, look at greece and say, see, that's how we are going if we don't get the debt under control and lose our ability to control our destiny and markets determine it for us. see, greece, what happens when you just cut, cut, cut, and you don't grow, and you done

simulate? we're going to be like greece. there's something there for the entire spectrum for everybody, there's something 234 -- in there. what speaks to me is that we together need to support europe, and this is where i -- and having some conversations with white house officials, i've been frustrated that we have not made a contribution to the imf, and i know how politically awful that would be for the administration to go to congress and say, boy, how about a bailout for europe? boy, the screaming and the hair pulling and masking of teeth, but i'd like us to be involved even if it is a token or small because it says we are investing in europe as they invested in us and our foreign policy objective the. for ten years europe has been in afghanistan not because of the threat they saw, but because they were there for american solidarity. europe is in deep trouble right

now. i don't care if it's tokenism, the united states needs to make a contribution to europe. that's how we give back to one another. for understandable political reasons, we can't do that. we are offering advice, our counsel, sometimes well-seffed, other times not well-received. they are doing important coordination with central banks, but i know one thing about history. when we don't engage europe, they got it, it's a large economy, and if we are not a part of it, we'll return back, but a greater cause for not being there in the beginning. i don't want that to happen. i want us to be involved intellectually, physically in this profound crisis, and that's exactly what it is whether europe tends to think that really it's our crisis, our fault, you know, our issue, i don't want it a race to the bottom for the economies, but a race to the top, and we can't blame each other, but find solutions. >> thank you. yes? >> can i comment on that?

heather made a very good point. we suffer from the same problem that europe suffers from which is we are failing to make decisions. >> yeah. >> we -- our subject is stuck now until january, and then we'll see what we do. europe is failing to make decisions on its debt crisis, and the longer it tries to shave it and push it off, the bigger the problems melt, and i would just want to tweak what heather said about our being willing to contribute. i don't think it's sensible even, let alone political sailable to contribute to europe. in the present circumstance it's just -- it's -- what's the word? enabling them to continue to postpone decisions. if we're -- if it were possible to friendship it around that in exchange for europe to make decisive decisions about putting up a wall against the further deterioration of the debt crisis, painful and difficult and involves who is in the

eurozone and who is not, eurobonds and what happens to -- who is holding european debt, what happens to the further issue yans of european debt, i think if you have those decisions, it's in our interest to support this as well in whatever way the markets require us in order to hold the line so that that stalizes -- stabilizes the economy like europe did in 2008 and 2009. that would be sensible. until we're at a stage where europe makes choices, i don't think we can even consider putting money behind it, and, of course, as we all said, it also requires the u.s. to get serious about our own deficit and debt issues as we look ahead. >> thank you. i'd like to open the discussion to the audience. we have just under half an hour. i ask you to please wait for the microphone to state your name and affiliation before asking

your question. we have one up here first. >> i'm brian berry, national correspondent for europolitics. i have a question on terrorism policy, and it didn't come up much, but a couple weeks ago there was an important speech from president obama's counterterrorism adviser, mr. brennan, basically admitting that the u.s. uses drone and will continue to justify that, and, of course, you also have continuing guantanamo bay, which is not being closed, and you have president obama clearly saying he believes in detention without, you know, having to bring a charge for counterterrorism, for security reasons. i'm wondering if you think those issues will, first of all, be issued in the u.s. presidential

campaign, if it's going to come up, or if you think it just won't be an issue, and if it is an issue for transatlantic relations as well. it's interesting to me back in the bush year, like these were front and center issues, and now it seems like they are not so important anymore. >> beginning with you? >> i don't think they will be part of the election. you know, i think that there is a tolerance that's developed since everybody has been concerned about the treatment of people that are picked up, but at the same time, i think that the president has been and john brennan have been very clear about the detapement policy. this administration clearly has stopped a lot of things that the previous administration was doing so i think that there's a general recognition that a lot of the activities that cause people to be very, very upset,

including here domestically and international allies and partners are no longer going on, but at the same time, there has to be a way to manage when you pick up some of these terrorists that part of the most important piece of detaining them is to extract information about current operations, people they are associating with, how they have morphed their financial opportunities, how are they dealing with each other through what is their network looking like and their cell look like. there is a sell by date on all of that because at some period of time these different cells, if you want that term on it, they basically deteriorate and go away, and there's such a fire wall around them that nobody knows who the next guy is so for some period of time that information is fresh and important and important to distract it because it saves

lives here and around the world. it will not be part of the debate, but you will see in the deal -- the debate, the political debate about foreign policy and national security is characterized simply as i'm the toughest guy in the world and the other guy is a weak fool. anyway they can do that, they will do it. >> uh-huh. >> and, you know, whatever hits the headline that day will be what it is, and they will be, you know, manipulated around and, you know, i'm the tough guy, and then the only other characterization is who loves israel the most. [laughter] who is spending more money on israel than the other guy. >> right. >> that's how the love is proportioned, and that's the characterization you see when you get into politics, and, you know, what's important is, and i just want to pick up on something that kurt said because, you know, you have this reality of who wants to be an

isolationist and who doesn't? who thinks it's a good idea to be cutting the state department budget? people don't consider themselves to be isolationists. really? you can't project american power in a peaceful way? our best face forward? that's really -- that's just destroying seed corn so i think, you know, we have a crazy situation right now where people have gotten ahead of themselves and can't justify in the political system what they are doing, but i don't believe anything you mentioned like counterterrorism, unless there's an event, somebody puts something in their underwear again or their shoes or something, and then there's the idea of whoever is running the government, the tsa is stupid, and we don't have this or that. that's true for anybody, and that unfortunately takes everybody's eye off the ball. >> can i add -- >> i ask you to speak to this in european's light on evolution with terrorism and attempts to

coordinate amongst themselves. >> yes. it was a great question, and i scwd the same question speaking 20 a student group in march in hague, and i was -- in fact, i asked the question, it's interesting. drone policies, guantanamo remaining open, dethey neon policy, i don't hear public reaction in europe about that. you know, has something changed? is there an acceptance of the policy or what did i miss? you know, i would have thought europe is vocal about these issues because they certainly, the bush administration, very, very concerned about them, and one gentleman raised his hand saying we like president obama more, and i said, okay, well, that's an explanation, but that's an inconsistency obviously in approach, and if you're concerned about it, and it's a value based issue, i have to say as an american i have concerns about, you know, some of this. we should be able to talk about it, but let's not be hypocritical about it either so,

i mean, we should embrace debates because it's an important debate to have, but, you know, my sense is, again, this sort of gets to, you know, we're at a different place in time. on counterterrorism, you know, i see continued strong cooperation, certainly at the u.s.-e.u. level, we held a few weeks back a cube security conference, a lot of good coordination, the deputy homeland security there, and they finished each other's sentences. it was a real focus there, and i think that's, you know, that is a very encouraging sign. we have differences, my goodness, on privacy, a lot of issues, and this is so important, we have to get it right. to the point you have to dedicate the enthusiasm and time. it's note an easy conversation, but it's the right thing to do, and it's important. i'm actually very encouraged that we're at a better place on the u.s.-european dialogue across the board on those

issues. >> now, ambassador, when you look at the evolution of european capitals or the european union on threats, on piracy threats, do you see a different set of partners now than under the previous american administration? when you see the e.u. raiding a pirate lair, does that make you smile? >> yes. [laughter] a couple thoughts on this, and this ties into the question as well too from mr. berry, but, first, no, i don't see a different europe, but a class houses europe. there's not a whole lot else to do. they are not happy that we are reducing from four brigades to two brigades in europe, but they are cutting more. what are they going to say? we should keep forces in europe because they are not, or they don't really want us to pull out

of afghanistan and risk that afghanistan's going to be a mess, but they certainly don't want to stay in afghanistan, so they will not say anything about that, but there's a free rider problem. >> what do you say to the theories like keeping troops there, you discourage investment in defense budgets. >> well, that one said, this has been going on for decades. >> we're keeping troops there for us. >> yeah, no, it's in our interest, that's right. on the other hand -- >> the more general problem of defense budgets and percentage of gdp. >> no, it's a decade's long phenomena that europe puts money in defense budgets as much as the u.s. thinks it should and we subsidize european defense, and that's just the way it is. we couldn't fix that when times were good, and now times are hard for europe. there was a speech given to europe when they could do nothing about it. >> how are they encouraged to

increase their contribution if we keep ours at the same level. that's the question. >> it's policy. if you reduce forces, will they spend more money? no, they're not. the answer is what's in our own interests. it's in our interest to have a foreign plater form to deal with challenges, maintain with our allies so when we do things, we can do things together. it's in our interest when we do something, we have as many others with us as possible to create a broader, political foundation for way we are doing. there's a lot of reasons why it makes sense for us to do this, and we have to decide what's the right level that's right for us, and you keep working with europe and keep trying -- as heather said, it's neither no u.s. leadership or, unilateralism. it's how does the u.s. lead with others so that we all try to do the same thing together? that's -- you can point to the first gulf war, point to kosovo, you know, you can point to afghanistan in the mid-2000s.

we're able to do this. >> thank you. >> one more thing on the counterterrorism point that comes back to the question i wanted to raise. i'm really glad you raised the question, and we are where we are because actually i think it was the bush administration that stopped doing things that the bush administration and the obama administration continued not doing them, which is good. we found a problem in that in order to deal with the world that we're in, yet you want to prevent terrorist attacks, not only arrest people afterwards, when you had people, you had to figure out what to do with them. it is good to have a drone program so that you can take out terrorist leadership, engaged in a legally speaking still under both administrations, we're in a war, and you is the ability to go after the terrorists. all of that is good. i think what you see in the u.s. today and europe, when it was only the bush administration doing this, people were willing to criticize and to do that, but

when the obama administration comes in and does the same thing, it timely clicks with people, oh, we have a real problem here. this is hard. there's not an obvious alternative so while none of us can be happy about, you know, just randomly -- not randomly, that's the wrong word, but using drones as a way to kill lots of people, and holding people in gawp -- guantanamo for as long as we need to hold them, nobody can be happy about that 6789 it's not a good position. we don't have options right now, and that's where we need to spend time as a broader community seriously thinking how are we going to do this for the future. >> uh-huh. >> a question up front on the right here. >> thank you. i'm kathleen, washington

correspondent. picking up on something that both heather and ambassador volker mentioned about how the eurozone crisis mirrors many of the problems that exist here in the u.s., how do you see the growing consensus in europe that austerity is not enough, having an impact, if any, on the political debate here and in the u.s., considering that the -- the political discourse about europe in the u.s. has been very negative. we've seen that in the republican primaries, the european use has been touted as a scarecrow, and do you expect president obama to use europe as an example of his approach at the risk of being associated

with a french socialist? you mentioned what when you quoted bill kristal. thank you. >> the risk of president obama using europe as a positive example for its own policies is zero. [laughter] there's no chance of that happening. the second thing is that if we're honest with ourselves, we have not had any austerity here. we talked about it. we flirted with cotas trough fee, but -- cotas trough fee, but we have not cut much of anything at this point. we certainly won't face it until january. even then, may kick it off down the road because we have the reserve currency and find it easy to postpone. in the end, i think in this country, the debate is not about more stimulus and austerity, it's about fundamental fiscal reform which involves some

combination of broadening the revenue base and reforming our massive expenditures in domestic programs with a proportionat effect on defense because you have to do that for fairness across the budget. that's the debate we'll have here, very, veryifferent from the european debate which is levels of debt that can't be sustained with the euro. countries individuals that can't sustain debts and what happens with them inside the eurozone, and no growth, no real growth going on in europe so that you can't see with the declining overall population, declining economic performance, how you ever amass enough wealth to change the balance on these debts. that's a very different conversation than the conversation we have to have here with our own problems. >> again, pulling back, this is really how democracies, western

democracies, are going to deal with deleveraging and paying. changing the social compact between the government and the people, and europe is now fundment tally making that -- fundamentally making that choice at terrific price. we have not yet begun to do that, but if we think about entitlement reform, we'll be doing that. we'll be changing a contract, whether we raise the retirement age as seen in europe, whether we reduce benefits, whether we're going to make some future investments in research and development and education. this is about how we all the west, japan and others, how we are going to do this, and it's the most difficult issue for democracies because who votes for increases in taxes and who votes for less benefits. what i think we're seeing politically within europe, my own reflection looking at french

elections and ongoing greek elections is what we're seeing is the center, the establishment is unable to hold. >> right. >> this is position, whether it's center left or center right. the moderates we say here, but that center position, they are up able to convince others that, you know, we have to do this, it's painful, and the narratives people are looking for, and particularly young people, a third of the french electorat in the first round voted for extreme left or right party. one-third. that came out of this center. cementer left, center right. that's happening in greece. it's the establishment, the center that's core, and where is that vote going to? the protest vote is going to the extremes. that is going to change.

there's a political, historical, cultural adaptation to that. that is what we have to understand. europe and the united states is going to emerge from this, and how will societies deal with that. when talking about european socialism, and europe is going, what are you talking about? way we talk about, translation, in my view, is the role of government in society. should it be a big role? a directive role? a limited role? this is a debate we've had in the country for over 200 years since the founding, size and role of government, and that conversation right now is happening in europe. i've seen more references to alexander hamilton on the european crisis, you know, we're going back to the fundmental principles because that's what we have to look towards to see how this is going to evolve. this growth and austerity

debate, what i get caught up in, in part to feed an insatiable need for information is we are analyzing the moment, not pulling back saying what does europe look like in 15-25 years? my children, how are they going to adapt to the new society? how will my country be dealing with that? that's the bigger picture that we're losing in all of this noise and confusion and up certainty, and as a think tanker, that's what we have to focus on. >> we can argue we already had this debate in the united states. >> oh, we did, over, and over and over again. >> most recently in 2010. >> yes. >> little of politics in this country is gone. it's been sacrificed. the worst thing it can be is in the middle of the road because you're hit by the cars going east and west and north and south. >> road kill; right? >> as leaders in the house, i see colleagues knocked off left and right because they were standing for things in the

middle. we already have -- we 4 the debate about what we should do. i think for all of these dpeats that say one or the other, it or it, take the or out and put and in. >> uh-huh. >> it's not growth or austerity. it's growth an austerity. they are not polar opposites. they are not -- they have to be blended in in a sen tryst way, a moderate way, and we have a name for it called simpson-bawls. we had the debate, just have not pulled the trigger. we have to get back around to it, but i'd say in the 2010 election when democrats lost the house and 83, 85, 87, whatever the number is, tea party people were elected. where do you think we're going to go if we send people to washington that don't have a temperament for compromise? that's what it is about going to

washington. except it's been absolutely turned on its head, over 30-45 years, by what i believe is the concerted campaign to make people that come to washington, to serve their country, constituents, be a part of representative government, to make them look crazy, crazy, stupid, and some arrive like that, others become that way, not everybody's good. [laughter] what -- how does the american people actually believe -- how do you get a congress at 9% or 12%? these people don't volunteer. they get sent. the same -- every -- we all get to congress the same way. how is it possible that the american people believe that the people that they sent from the moment that they send them to the airplane ride or the car ride turn into maniacs? >> everyone else's congressman.

>> well, it is now -- everybody's congressman including your own. [laughter] that is completely unsteanble for a represent -- unsustainable for a representative democracy. we have a number of challenges, but i think that we're going to have a political crisis in the country where the american people decide that they are going to have to pick people that are going to represent them, hopefully in a more central, moderate way, that are willing to compromise, and will actually get things done and not of -- live their lives in washington. >> under 10 minutes left. i'll collect the last several questions and give panelists a chance to reply. with nine minutes left, keep the questions short. i apologize in advance. please, sir. >> i have the good fortune of looking for ambassador volker a few years ago in the state department. my question is i hesitate to ask

it after the last comment, but you'd think everybody wants to prevent a recurrence of the lee man brothers -- lee lehman brothers event that led to the financial crisis. is there a european fire wall that couldn't be explained to the american public in the terms that we want to present a worldwide con they gent after a greek exit? no? no hope? >> it's been a fascinating discussion. >> in terns of the debt, a couple points, most countries in europe, most states are no the in that much debt. looking at the eurozone, it does not have that much debt, less than the united states, doesn't have a trade deficit, and many of the fundamentals are good for

the eurozone. the problem the eurozone has is a balancing, and that's an important distinction because there's surplus member states and deficit member states. california, where i live, we've been bailing out mississippi and alabama for decades. that's how it works. europe doesn't have that, but they are in the process, if you look at it, coming up with that, but it's going to take many years. it's true that there's just no correlation between debt and your economy being in trouble and your bond rates. japan has the highest debt in the world, and they borrowed at a low rate. u.k. has actually a higher debt than france has and is borrowing at lower rates. united states, we borrow at low rates with a big debt. i mean, our -- we're getting kind of lose in how we talk about these things. the economists, frankly, don't really know how it works. they say you shouldn't have more

than 90% gdp to debt ratio or 3% ratio. there's no real theory those numbers are founded on. they are kind of pulling them from research and other things. you know, i think any comments you have to that, but i think that we have -- things are not as simple as the narrative makes it out to be. >> thank you. a final question, if you please, in the back. >> thank you. karen johnston, american university. i very much share some of the concerns. you mentioned the problem of the public's level of interest in information on foreign policy issues. i think there's a missing link here, and that link is the role of the media in providing accurate and sometimes any information about some of the foreign policy issues that are of great concern to you and some of the other foreign policy experts and people in government

and so seeing from your perspective, not perhaps just you, but from the others, what can be done to strengthen this link because there are obviously problems in the business of news. the problems of differentiating between news and opinion. the fact that people now in this media landscape self-select the kind of news sources that they have, which does affect their opinions and views on foreign policy issues so what can be done because once the american public is given informed information about issues, they can give informed decisions and be part of the foreign policy debate, done with james on direct democracy and the program in international policy, and there's been an greasing report on providing information about the defense budget in how americans see the defense budget so what can we do?

>> thank you professor, johnston. i'll give panelists a minute to respond etch. starting on the left with heather. >> on the debt issue, i mean, again, i'm sympathetic. we should be engaged, but understand how ruinous politics are. the t.a.r.p. program, something like 40 out of the 87 banks that received t.a.r.p. funds for international predominantly european banks, so in some ways we're already doing this, but i think support is required, but i appreciate its political suicide here in washington to do it. steven, on your question of the simplicity that we talk about this, you know, you're absolutely right. in some respects, i think what we're seeing is a balance sheet recession, and this is why i think some of the differences in approach that europe's had, the austerity driven efforts made things worse, but my concern is that the divergence of economic, of economies in europe with germany, you know, pulling away,

really from the rest of europe, economically, how do you sustain a more balanced economic union when you have one member that -- i mean, if you took germany out of the statistics, that trade balance number would not be so good. you -- it's skewing because it's in such -- i think it's such a different place economically, and that's something we need to watch very carefully, but i agree, it's not so simple. the role of the media, my window into this because think tanks are called upon to talk, talk, talk, talk about what we see, and you are trying to analyze it by the second. it's hard to get long, thoughtful, big picture, again, telling you, pull back, what's important about the story, the 24/7 insatiable media 6789 i'm not sure i always help the story. i try to provide context, but they are looking for a sound bite. you give 20 minutes of blah, blah, blah, and they pull three

sentences out, and you didn't mean it like that. it's difficult to appreciate. in the administration, it's more challenging than out here in the think tank community. >> thank you, time for two more sound bites. >> steven, i couldn't agree more. i'm speaking for myself. this is not a question of who is eliminating from the eurozone, but who gets added. welcome to turkey. this is a growth problem. this is a growth problem, not a debt problem. you're absolutely right. it's about growth, and if you added turkey, maybe poland to the eurozone, then the problems solve themselves very quickly. to my friend from american university, let me say unless we package foreign policy and national security around "dancing with the stars" or some kind of, you know, "amazing race" or a snake-riden swimming of the potamic -- >> we should start doing that. >> i don't volunteer for that

one. [laughter] >> the american people are just not interested. they are tired. they are scared. they are -- they want to be entertained. they want something to divert them. it looks like problems to them, and they look like problems somebody higher should solve. they will not pay attention -- charlie rose, so many things to watch, and they don't watch them. >> we have to jump for the shark foreign policy. [laughter] >> the united states -- [inaudible] >> the prime minister's question, exactly. >> just two thoughts. one of them, different points than ellens on the economic. i think the issue is confidence. the reason french interest rates are higher than british ones, although the french debt is smaller is because france is in the eurozone, and that imposes a risk over control. japan, people have confidence in japan and in the u.s.. they don't have confidence in

europe. in europe, it is some states, not all, many are doing very well, but it is some states that are in unsustainable situations, and that is something that could have been nippedded in -- nipped in the bud and dealt with a couple years ago, but it wasn't, and the problem has grown and grown and grown as a result, and it can still be dealt with, but it requires some choices that, thus far, europe is not willing to make, and i would say one of those choices is to eurobond the debt, and then have a collective process for issuing new euroissued debt. that would be a huge transformation of the way things look now. is that going to happen? i don't think so. >> we did it ?t 70s with -- we did it in the 70s with bonds. it's one, two, three. you had a big premium on the interest rate and create a junk bond, but, by the way, a lot of

peoplement to buy it because at this time i think we'd all buy it. you know, 8% or 10%. >> finally to close on a controversial note. >> all right. >> i actually think that voters and i think and students i've seen a lot in lately in the last few years are better informed, more engaged intergnarlly than when i was a student -- internationally than when i was a student 20 some years ago. people have access to information more easily through online media, social media, television, through travel, and there's a lot more travel going on. there's just -- people are a lot better informed than they have been in the past. ..

required at every level whether it's a city, state, federal, congress, president, whomever the willingness to use your best judgment and make hard decisions even if it means you are not going to be very popular the next time around that's what you need people to stand up for thief when you go into office teeth. when you look at the intermission people have its with the leaders come back with and say this is the best we are going to be able to do for these reasons. i support this and i'm going to do it and basic consequences which is hard, but i think that

is what is missing in the equation. people think basically no lot more than they used to and they are angry about it and they need some people to stand up and give them something to believe in. >> that is in terms. >> it's kind of funny because if you think that on every second term presidency for the last however many years they've all been better than the first. >> on that note i would like to thank the panel for coming in all of you for staying. [applause] earlier this year federal reserve chairman ben bernanke told a series of class is at george washington university school of business. this week at 6:45 eastern on c-span2 you can watch the lectures. coming up later today chairman bernanke's first schleck church where he talks about the origin of the federal reserve and why the u.s. abandoned the gold

standard. michael steele was the chairman of the republican national committee 20,009th period 2011. thanks so much for coming and talking to us about campaign 2012 and republicans. before we jump into the presidential race, let's dhaka the recent happenings for seats in the senate. senate hopefuls in texas is the headline we're seeing a challenging race there. we are also reading a story this morning about the congressman a upton, the chairman of the committee facing a run from that t. party. what is the tea party changing the face at this point this year? >> they've had an impact going back to 2009 in the reason utah. >> host: they still have that impact? >> guest: absolutely. the campaign for example the most recent example of the impact and influence of the tea party activists it's not so much a team party phenomena as the grassroots within the party asserting itself and making the claim that we want to have some control over who is going to

represent and who best represents those things that we value and think are important, the economy etc. and for the candidates that have grown out of touch and are distant and not else connected to the base as they should be the pay that price, and so i think that is a very important part of the rejuvenation of the party refocusing its energy at the grass-roots level where the communication is most important, and we are seeing now in these primaries establishment types of those who typically are supported by the establishment having a hard time holding onto the seats that they've had for ten, 15, for 30 years. >> host: does it worry you? >> guest: not at all. it is a refreshing part of the process of your an elected official getting the message you better stay engaged with your voters. you can't -- you know, you can't come to washington and not get back home, spend time at home. you have people that come here and they live here and they really go back to the district

or the state. and then when they get into the critical election the one to claim honeycutt too. you're part of the community. now you're not used in living in d.c. for 40 years. people resent that as the issues become more important for them. especially in the economy. they want to know that they've got folks that are going to be fighting for them in washington not doing the same old, same old. i'm not bothered by that. >> host: recent poll by abc news shows president obama come candidate mitt romney in a dead heat on the economy. what does mitt romney have to do to win over americus trust in light of all the focus on his time? >> guest: i think his turning point comes to life in texas with the primary i think that will be enough to solidify the e 1144 number he needs, the magic number for the delegates for the nomination of the first ballett election of the first ballot to use of that's going to get behind him. he can begin to tailor his arguments as he has begun to do.

more specifically and explicitly on the president's handling of the economy of role that he has played in creating jobs in the past whether that is as the governor of the state and how he sets the tone for the future and the vision of the country that is going to be a very important message. he has to begin to have that conversation with independent voters out his particularly white women who are going to be the swing vote in many, many places around the country and he has to have a way to connect with them and see all the scary stuff you are hearing from obama about how capitalism is bad and profit is no good, let me tell you a different story. let me tell you how it actually can help you get back into the job market if you lost your job or own a business etc. >> host: how does he appeal to the demographic of the swing vote as you describe the winning vote who maybe has more moderate views and the same tea party group we were talking about that

you see is setting an important influence on what is going on. >> guest: i think that is the rub. it's not an easy dance because, you know, they can be extremes on either end of the spectrum people want you to play too. i think that the owls is quite frankly speaking in specifics about the economy. those voters that you talk about who may be moderate or maybe have some other political persuasions still have a fundamental view of where they think the economy is and they should be doing and to the extent she can talk about that and the obama folks don't want to talk about it. they say a lot of beautiful things, but he is not talking about the jobs picture in this country that the 23 million or so unemployed stopped looking. he's not talking about the health care plan. as a character piece of legislation that had a big impact on the economy and will have a big impact in 2013 when the taxes that go to pay for this program come into play he's

not talking about that. that is an opening for romney to have that conversation so put all that in context with the voters and she will be successful. >> host: michael c. was the chairman of the republican national committee from 2009 to 2000 and 11 and served as a lieutenant governor of 2007. if you'd like to speak with him here the number to call is democrats, 202-737-0001, republicans, 202-737-0002, and independent calls, independent phone co. >> caller: good morning could yet how are you today? >> host: i think that she had a little trouble hearing. >> caller: can you hear me? >> host: why don't you give your question and i will pass it on to the chairman. go ahead. >> caller: my question is regarding the republicans' plan

to pay for eight years of bush. the republicans spent $11.5 trillion with the medicare advantage, with t.a.r.p. and they blew clinton's $5.6 trillion surplus, and they gave another $3.5 trillion tax cut in 2003 for jobs. but by 2008, we had millions, and i think that the republicans still have a lot to explain to the >> guest: i don't disagree with that at all. i agree with the premise that is a good point and that's why you saw the emergence of the tea party acted as some within the gop. those republicans were frustrated with big government republicanism and those frustrated spending that we did not half, creating debt, which is a burden for the future generations, spending on things

like medicare advantage, which a lot of folks did not want to do within the party as well as not having the resources to pay for that at that time. but that does not change where we are right now. it's part of the history of its part of the scenario but it doesn't change the fact that in the last four years our debt has grown $5,000,000,000,000.4 years versus the $3 trillion under bush under eight years. yes, the war wasn't paid for a. of $5 trillion has been spent has not been accounted for. it's on the nation's credit card. we are going to have the same discussion coming up this fall about raising the debt ceiling spending more money that we don't have. and so that is what this election is going to be about not so much what george bush did we get that george bush did that's why we of the turnout in 064 treen 08 in the gop where there were frustrated and didn't participate and voted people out

of office with a solid turnaround in 2009 with fiscal conscientious that come to washington and john of light winds in the sand. and the debate going forward is than to be hundred k for the additional spending that we have with your id is obama's budget agenda in 2015 should we get reelected. we have a democrat senate that has been three years yet to pass a budget for the country to even have a debate about the nation's fiscal health. we have the two budgets come out of the house to improve the they presented a budget, the democrats have it. so this is part of the debate. everything you just said but let's start talking about what happened from 2009 to 2012 and see how it comes up. >> host: talk about turning over a new leaf in the administration or carrying out the same policy in the previous administration, on "the new york times" today talking about president obama's

counterterrorism strategy and what he is doing to fight terrorism to go after the targeted strikes. what do you make of what he's doing? do you think that he is doing enough? and do you think it is that different from what george w. bush was doing? >> guest: i don't think it is that different from what george w. bush would have done or did. i find it somewhat humorously ironic that you have the president who was appointed about waterboarding. leah of clinton torture you we're just going to kill you and put your name on a piece of paper and send a drone in and kill you. it makes no sense that rhetorically i don't know how they go back and justified. i listened to folks this morning on the various programs sort of, you know, romanticize about the president's decision and how admirable it was for the president to actually put himself in the midst of this and sit down and draw a list and talk and think about this thing. okay, that's what presidents should do. but if george w. bush can come

up with a list of people that he -- remember the reaction in the playing cards that the president had of all of the terrorists, they had a deck of playing cards it was a deck of playing cards people like my gosh. i think that the reality is that this is a very difficult situation. it's a very troubling time both broadly speaking on the war on terrorist and more specifically in syria right now. the president has some very important decisions to make. i'm glad he's making them. i'm glad he's being cautious and delivered it in his process and listening to certain people. senator mccain i would agree with his views that we don't want to get into a position we are leading from behind prof prof off. you look at rwanda and all these other types to sit back and let them die because of the behavior of dictators so the president's got a pool to the coke full

plate in that regard but in the romanticizing of the decision somehow thinking that this kill list is known for jimmy physical misplaced. >> host: the burial in syria pressure on syria increasing after killing citizens there. let's go back to the phones and hear from johnnie, republican in baltimore maryland. >> caller: good morning, mike. >> caller: good morning. how are you? >> guest: i will. how are you? >> caller: good, good. we are in trouble in times. back when george bush was the president -- after 9/11 happened was a weird thing that happened to me because i just so happened to be flying today before, and i just mentioned to a friend of mine at key west i said you know what, somebody could take one of these planes over and do whatever they want with these planes, and there i was, you

know, complaining about the captain on the flight i was on leaving his door wide open. and then after 9/11 happened, you know, my friend in key west called me and said i can't believe you said that today i said you know what, it's just common sense. that is what i think the government is failing right now is common sense. we have simple solutions that could fix problems but it seems like the government doesn't listen to the average person. my goodness, you know, i've been called by a congressman and senators to get them to listen in this seems like they do a copy and paste in these letters. >> caller: i think you make a good point to go back to the first part of the conversation about this activism, this sort of home grown activism we see emerging around the country, people like our friend from

baltimore is frustrated. you know, they are looking at things through a common sense lens. if you do this, be happens, if you do become essey happens. the government says if you do this maybe this happens. people are likely to net gistel logical progression. if you are on an airplane and the door to the cockpit is open that could be a problem so maybe we should address that. looking at things like terrorism and our economy people want the leadership to come with common sense solutions. it's not complicated in that sense. maybe it gets a little bit down in the weeds all but for both but the reality is looking at topline of it, we can begin to address the nation's problems right now economically. how do you cut down on that? you don't spend money you don't have to read why we continue down this road we want to provide everything to everyone knowing that can't just be

honest and tell us what it is. i make the point oftentimes that bennati look at the major events in the last ten years, 9/11 in 2008 economic collapse. what can i tell you they have in common? they never ask the american people to sacrifice. the war on terror when it began in 9/11 what did the government tell us? go back to the malls, back to the planes, we've got this, don't worry. economic collapse happens, what does the government tell us? don't worry. we are going to make it easy. but there wasn't this sense of that we have to make a sacrifice here. you're going to have to sacrifice a liberty or to in order to secure the homeland. you're going to have to make financial sacrifices. we may have to raise taxes or cut spending but let's have that

discussion as opposed to the camps we normally retreat to. i'm against tax cuts, i met for more spending and we will see what happens. what happens is what is frustrated about to the application of common sense. >> host: what is wrong paul's dena? will have an effect on the war closing the fed overthrowing the health care law, legalizing marijuana. how far is from paul going to go? what does he accomplished in this and even though he's officially suspended his campaign he still wants to be in tampa. >> guest: and she will be. i think that he's seen in the recent contests where the state party's have their state conventions and he's picking up the delegates to go to the convention. he is coming to be well represented in tampa there's no doubt about that. i think that ron paul in his campaign in many respects has helped change the course of the dialogue and focus particularly issues like national security to

the course trouble within the gp on that issue. he's educated and elevated with respect to the said. now you have mitt romney and others talking about what we need to do about the fed, said he has had an impact and will continue to have 1i think well beyond this presidential cycle and i think that is ultimately the strategy for him is a good one. he's laid down the scene and certainly his son will argue that, those points in the senate going forward. but i think that ron paul has had an important impact. on the marijuana thing i want to how far he's going to get with that but i know certainly on the financial and foreign affairs he is energized in the debate particularly with our young folks who gravitate more towards that libertarian sense of the bird in terms of the world view, and i think it is going to have a long-term effect. >> host: how do you keep them

engaged and looking ahead we see a story on the hill angling for the keynote speaking flat. the former rnc chairman how do you make us an electric experience? >> guest: good question and you have run into a couple questions. one, the networks, the major networks plan to only cover an hour a night at most as was reported at some point. summertime is going to cut down. from gavel-to-gavel where i work i know it's going to be in it. but, so that means you are going to have to get the maximum of fact for the audience. you're going to have to strategically decide if abc, nbc, cbs are only covering, you know, these three an hour each of those, we've got to make sure that we get the right folks in those spots. that's going to be a new dance

for those committees quite frankly to deal with. so, you're going to see the jockey and hear the pleas and the advocates but i think mitt romney tweet is ultimately going to decide who is going to reflect the message i want to send to the country coming out of this convention. this isn't about paying back the debt to someone or making sure joe blow its his speech because he's such a good guy but i want to reflect my message when going to heal the country and move it forward and that's where you are going to see the team come down and ultimately those people who do get despot's will reflect that view. >> host: let's hear from melanie calling. self-described libertarian. >> caller: actually, i will just add to that. i voted for you and i wish that

you had one. i really, really do. the reason i am calling is to find out your opinion on what the democrats are doing right now. if you oppose obama you are racist and you would be a very good person to be able to tell people why you are a republican and what kind of things you have had to deal with in your different runs with people calling you names like oreo cookie to help people understand why the republican party does stand for african-americans. >> guest: for me i grew up in washington d.c.'s weidinger gerlach in the traditional household or structure. what moved me towards the party is its philosophy, its history and orientation towards the individual. the republican party has always had a very strong libertarian

strain with the rights of the individual tromping those of the government where individual and how will it is more important where we all want and we all kind of moved together. the rhythm of the country is built around individual initiative and that is something that i felt the party always reflected well and always spoke to certainly with respect to my own community appreciating that link between the republican party and african-americans to me was important, and when my first election was 71st and i watched very diligently the battle between ronald reagan and ford and his message resonated because a spoke to who live close talking about i can go out and make good things happen and have an impact. it always has been and always will be if the state to it.

you don't have to cater and do outreach. when you need to do is talk to black folks and white folks and all people and have the sense of where we want to take the country, why our leadership will make a difference and how they will be better off not because we are going to create some new government program but because we are going to free them up to to get in touch of what they define as the american dream and i think for us for republicans in this election it's particularly true for mitt romney going back to a question already asked he can make that argument, not from a week from his success and failure is because that is part of the experience we want people to be authentic and honest and share that to not just say it's better to give to the fishing to teach you how to fish and it's better to create a program for you but you also need to become dependent on van to have you go

out into the screen market and find your own way. for black folks that every entrepreneurial and very much connected to the creation given their history creating wealth and building this country i think that's a very powerful argument. >> host: we have a call earlier and show they were taking umbrage of president obama's language. how were you trying to elevate the dialogue and make sure like the caller that spoke up for the libertarian says i'm a racist, i like him but i'm not racist. >> guest: you don't defend stupid, number one. so you did the right thing saying this is not a part of the national debate or part of anything that we want to be a part of in the discussion. number two, i think, you know, a lot of times people see the color of obama's scan and say what does that mean. the policy is what matters. what he's done on health care and of the war on terror of

those areas, that's what matters how you feel about that and respond to that should have little to do with the color of his skin. but authorities pushing for congress and the health care agenda that's going to cripple the country. he's pushing through the congress. in this economic agenda that is going to involve the country depending on where you are in that debate that's where this is. it has nothing to do with his world view. his world view isn't colored by his skin tone, it is by his philosophy and his experience and ideas and that is what then takes the shape in policy and that's where we have the problem. >> host: let's hear from tom, republican in st. peter's florida. good morning. >> caller: good morning to both of you. yeah, i'm also calling about ron paul. you did address some of the

concerns i had with regards, but i would like to reinforce some of the things you said and also ask about when you think about he has been a somewhat marginalized by the republican national committee, and to a certain extent or to a large extent by some media help let's and live a tutor c-span in their respect c-span but i think that they sold marginalize the candidacy as well. the lady from cleveland called earlier and you pointed out that we have to look at where we are right now. it's a pretty serious debt crisis and i think that she has been the only person to truly address the crisis. >> guest: >> host: we will leave it there and get a response. >> guest: to keep the last first that ron paul has as i said before brought to the national attention particularly in the economic front that have come true with a lot of voters.

keep in mind he's making the arguments that he made 30 years ago. so again, there's that authenticity, that consistency that resonates with voters out there and particularly with younger voters, a generation that had been fossil the 32nd sound bite see in ron paul someone that is willing to expand the the the date so they gravitate towards that and i think is going to, again, go very well. the problem was the first part of the question about how you can marginalized because he may come off a little bit quirky and people make fun of the size of the suit. like with barack obama what does that have to do with the substance of what the man is saying and the substance of his policy, so the networks tend to sort of, you know, treat him sort of on the fringe and on the edge when in fact he is a lot more mainstream they want to give him credit for and you see that and i think we will see that play out over the next few

years. >> host: st. augustine florida. scott is a green party member. hi, scott. >> caller: smack in the middle of the republican propaganda machine. is c-span anything else, the republican calling in shows or come hell, last week's lander in me as a liberal, i mean openly slandering me. let me tell you what i going to do. when the supreme court decides mandate unconstitutional i want to come back to c-span's mandate and bring in a court to get rid of that mandate so i don't have to pay for this, again the. i don't have to pay to be slandered by c-span. >> host: answer you feel that we could we try to have balanced programming. later on we will talk to clarence page is a little columnist for "the chicago tribune." that's coming up in a little bit and we try to have a balance on our show with liberals,

conservatives and everything in between. let's hear from joel, democrat. hi, joe. good morning. go ahead. >> caller: good morning, brother. how are you doing well? >> guest: i am doing well. >> caller: my brother, i always love you and have respect for you and you are the brightest i have ever seen. i told my brothers do not try to criticize this brother because he is a brother regardless of the family that you are in. above all to say to you, my brother and looking at the republican party of the republican party if you look -- i'm not talking about we -- way back, this is what concerned me the most. when the world was celebrating this presidential it was a group

of republicans that was in some way trying to put themselves together to say we want to make sure that we present this progress. >> host: the caller is talking about republicans that say we don't want the president's agenda to go forward. >> guest: i've always felt that that was just a little silly. i get the partisanship of on the hill. going back to scott's pond before the one lesson in that conversation is that you can't please everyone but you can certainly take them off at the same time. if you are doing that you are doing a good thing, but the reality of it is those who come in when the president was elected with a predetermined agenda for his failure, you know, i think all of that has been misplaced and it's hurt us in the long run if voters

particularly independent voters who have a great deal of respect for and hope in this president as they would any president. when you come out saying the goal is to make sure he failed that is something the country doesn't want to hear or to see. finally the policy you have to have the policy to fight over, so don't set before you get in the game had no matter what you do i'm going to be against it. that's not true because the obama administration has used drones' far more than george bush would have used them or did use them so there is this sense that you can't prejudge how the administration will run their course. you have to deal with what is in front of you at the moment and it goes back to the policy

discussion of your prepared to have a policy discussion over the direction of the country between conservatives and liberals that's a great. but then when you personalize it, that's when you lose. >> guest: host could talk about the race for the vice president. in the journal the buzz around apartment with mitt romney in cincinnati in february making the case for senator portman as a potential picked as this weekend on the news makers we had congress, debbie wasserman schultz, the chairman of the democratic national committee and she talked a little bit about what has come in the race ahead. let's take a look at this debbie wasserman shorts. >> it's the mother of all battle ground states. we've know how important florida is, which is why we have a significant and massive voter turnout operation that we are deploying and developing. when you look at the issues that matter to the florida voters and you get the economy and job

creation and look at immigration reform, when you look at medicare and social security on all of those issues that drive the voters to the polls and for the president obama has been fighting to make sure that we can maintain medicare and social security as the safety net of the seniors of always has been and should remain while mitt romney has embraced the budget plan which would end of medicare as we know it and shred the safety net and we've seen years with no floor and potentially where they could fall right through. and into an abyss and that is unacceptable. hispanic voters in florida, very concerned about mitt romney being the most extreme presidential candidate on immigration and they want to make sure we have a president in office that understands the act to become law, the comprehensive immigration act should pass finally, and we should have opportunities in america for everybody to be successful. that's why i think barack obama will win in the polling i have seen recently doesn't really make much difference in some

cases that hurts mitt romney or does very little. marco rubio has been a nice guy. congress amended the wasserman you can see that on c-span.org. talking about marco rubio as the vp pick and rob portman. who are you looking at and how much canada gained? >> guest: she may not have been a community organizer but he's the head of the house leadership in florida, he is a well-respected to table the exception from enough the credentials. she has as much standing in the job as anyone certainly coming out of state legislature. the reality of it is i think all of these individuals are going to be important to the mix this fall. portland, rubio and others are going to have a play.

i think though the format from he was granted to someone going back to the early plan that's consistent with the overall thrust of his administration with the administration would look like, serious, dedicated, understands the mechanics of government and how it works that tends to lend itself to rob portman whose budget management omb director and member of the legislature again being of the state level bringing that experience. so he's going to take his time. he has a nice crop of folks. i don't believe that we hispanic card lets play this card or that card. i think that isn't his style. his style is going to be much more collaborative and serious and so, that's kind of how i see it right now. >> host: republican colored in

virginia. good morning. >> caller: good morning. thank you for taking my call [inaudible] i would like to offer my comment a response to the comment that was just made and what i feel i am concerned about. what i am concerned about is i am a veteran. i'm concerned with active duty military. [inaudible] >> guest: i wouldn't say that just because he didn't serve doesn't mean that it's not a priority for him. he can apply that to so many

things in life that, you know, we may feel important but we have had no direct experience in doing, so i wouldn't say that about him at all what i would say is first think you for your service and i definitely appreciate your frustration and concern about how our veterans are treated, and i think the country has become more sensitive to that jury important point not just in terms of past war but the men and women coming back home from iraq and afghanistan who are suffering all types of issues whether it is mental or physical or otherwise related to their health. but also just in terms of getting back into the workforce re-enter getting them into the community come back into a life that they knew before the war is so critically important and i know the team has laid out a pretty aggressive effort on

that. i've read some reports on his condition and the types of funding and commitment that he wants to make a certainly that is tied into the overall approach to the defense and military matters, but i think he does very much as president obama does have a very serious view of how we take care of our veterans when they return home from the war and how we are smarter and better at deploying our vets and soldiers and that raises the question and syria. do we go down the road we are talking about boots on the ground because if you are going to get serious dealing with the things you have to deal with this is another consideration, so i think i have heard him be much more sensitive on those issues than people give him credit for. >> host: donna, independent line. go ahead. >> guest: >> caller: three brief points. first come on agricole c-span is

balanced. what i don't like is we don't get the same amount of time to respond as the guest does and so would always sounds like we are losing because the guest gets to talk for five minutes and we get maybe 30 seconds. but anyway, first of all, last summer obama and john boehner had a deal to cut 4 trillion from the debt but none of that would go along with it because they didn't want to raise taxes 1 penny on those earning over a million per year. they are not representing the average person they are working for the rich and powerful who pay for the campaign and they want to privatize social security and medicare. second, in 2006 bush and the republican congress past the free trade bill for china which not only sent millions of american jobs but isn't trillions in lost tax revenues from higher jobs. >> host: let's get a response. >> guest: the fact of the matter is the obama

administration in the deal, yet that broke down. why? because you had tea party members of the house saying you don't have corresponding cuts in spending. we see revenue deals. all we are seeing is a tax increase. that's what the administration is pushing. and republicans understand to put in the context they've been down this road before. ronald reagan and even bush got into these deals with democrats in the house and the senate where okay, yes, we will cut spending as long as you do that tax. so what we see, the tax increase but we didn't see the commensurate cut in spending. you have leaders that say we want to see the spending cuts first and then we will talk about that once we see how that is stabilized what additional revenue we need to bring in. the other thing to keep in mind is like in this and what you want to blow up of republicans and say they blocked the deal. the president turned his back on some symbols. the commission came back with recommendations that both conservatives and liberals in the house and senate supported

it the president walked away from that. so, there is a washington game of the status quo that even the a demonstration with a that is from the future of stepping into the unknown like some symbols or as we saw with some of the dealings that he had to go through but that's what you're trying to break through and the american people want broken. we will see the elections turn on the congressional districts in terms of the money as a part of politics so why do you want to blow up republicans and say they're getting all of this money from fat cats, wall street will select obama in 2008. the donations to become from individuals and small corporations and big money people in the races and the country. it's only the ones that the high-profile level the presidential level where you see that. but it's still a factor that bothers a lot of people. >> host: let's keep talking about fund-raising.

$11.2 million in april. the dnc 14.3 million according to politico and here's the story troubling to las vegas for a fund-raiser with donald trump to might be in light of the president's reelection campaign as pushing and 92nd devotee of juxtaposing the republicans' willingness to embrace an outspoken voter against john mccain, 2008 to president obama's americanism, and it has donald trump questioning the president's citizenship and a classic you our full-year. >> guest: my last year a lot of people got upset because the committee went into debt which i didn't want to do by the way but i'm a classic conservative. i don't want to spend money i don't have. the argument being that we would make that money out and they have. in the presidential years you were going to get that money flowing through the committee. you've seen that.

the president, that is about as consistent as the president is a lot more to pull to help raise that money. look, small donations is the mother's milk of politics. a lot of folks focus on the big money but as it is learning the new landscape is a smaller dollar. that is where obama is the most effective. he held up opening of the team to the big money. why? because he had 386,000 new small donors in the first quarter of this year. so the reality is the dynamics financially changed for the national party's. they have to focus a lot more of the individual smaller donors. the big donors that make the big checks, that is one and done but if i have got a thousand people writing to me to hundred dollars checks here or there over the course of a campaign, that is something that you want because

that is a constant flow. i don't have to work as hard because it is coming in automatically with the campaigns now what we charge 100 to your credit card every month. they are like okay so you don't see it, but you do feel it in terms of what happened in the bottom-up. >> host: one last call in lawrence kentucky. good morning. >> caller: good morning. plight seen you on msnbc but i heard a lot of what he said. you talk about individual liberty dhaka can't marry want next is the right and budget. when i got sick i lost my insurance and the lost my job. last year i said then 60 something million in the hospital. i am on employable and now

you're trying to say you have to pay for the war and all that by cutting back benefits? those are the only things tat give me a little bit of freedom that i do have. >> guest: i am sorry to hear about your health situation and definitely can appreciate that given some of the things i've had to deal with with my life i understand that and i did that this is a classic situation where we are under a paradigm that has been better and i did what we are looking at and we need to evolves into is a new paradigm in which we make the decision to have guns and we can take care of protecting us against the global offenses that come our way whether it is a war on tehran were dealing with a nation to nation. but we can also make those trees is here at home to provide

better health care for better educational opportunities. that is the date going back talking about the suburbs conversations that's the conversation these leaders need to have with the american people. when you understand what the caller has laid out. i am on employable. what are you going to say to me, mitt romney, barack obama? you're saying you want to cut these programs, paul ryan and your budget because this is the impact it has on me, yet you want to spend more on these programs over here, mr. president come and look at the impact it has on this community of people that don't want to contribute to that. so this is the national d date we need to have now come and i think individuals like this are reflective of the frustration across the spectrum. >> host: you can catch him on msnbc where he's an analyst. thank you for coming so much at the republican national committee

carroll your this year federal reserve chairman ben bernanke, a series of classes at george washington university school of business. next the first of the four lectures in which he talks about the origins of the federal reserve and why the u.s. abandoned the gold standard. he is a professional career he's held teaching positions at stanford graduate school of business, new york university in princeton university.

>> for those of you watching the broadcast and president of george washington university. and it's a pleasure to welcome you to today's first class in the series entitled reflections on the federal reserve and its place in today's economy featuring the chairman of the reserve dr. ben bernanke. i am pleased to acknowledge we have with us to university trustees and also a number of faculties hear some of them will be teaching in the series. today is the first university series delivered by a sitting chairman of the federal reserve to i think it does provide an extraordinary opportunity for the students who are here in the classroom but also for those watching online. we have an opportunity to gain insight into the nation's banking system and a wide range of issues that affect the country in the world. i do want to say there are microphones available for the students and certainly encourage you when the germans lecture is over to avail yourself of those and hopefully be a lively exchange of questions and answers at the end of the

lecture. so now it is an honor to introduce the chairman of the board of governors and the federal reserve system, dr. ben bernanke. islamic he took office in 2006 and is now serving as a second term as chairman he also serves as chairman of the federal reserve open market committee. before his planned and as the chairman, dr. ben bernanke was involved in the federal reserve and several loans as a member of the board of governors come as a scholar and as a member of the academic advisory panel of federal reserve bank of new york. he also served as the germans council of economic advisers from june, 2005 to january, 2006. a german bernanke is no stranger to academia. she's been a member of princeton, stanford and new york university as well as massachusetts institute of technology. he's held a guggenheim and sloan fellowship and as a fellow of the key econometrics society and the american academy of arts and sciences. jarman bernanke received a bachelors of arts at harvard university and a ph.d. from mit. ladies and john paulen, please

try me in welcoming the chairman of the federal reserve, dr. ben bernanke. [applause] >> specs before. this is great. this is what on deutsch to do before i got in this line of work for 23 years and i've always enjoyed engaging with college students, so thank you for being here and i hope we have a good conversation. it would be particularly thank the president and professor ford and george washington university as everybody here knows these lectures are part of a course, and after i get off the scene there will be other professors talking about other aspects of the fed and you will hear different points of view which is great and you will have some papers and all kind of things i'm going to read in the paper, so i look forward to doing that. so, i will be talking from

slides which is in part for the purpose of making this available to others who might be interested to read the slide will be posted on the federal reserve website, federal reserve.gov as we go through. so if you need extra copies, by all means, do that. as the president said, i am going to be talking for a while from the presentation, but at the end i hope that we can have some questions and answers. so, let me get started. what i want to talk about in the lectures is the federal reserve and the financial crisis. my thinking about this is very much conditioned by my experience an economic historian. i think when you talk about the issues that just occurred in the last few years it makes the most sense to think about it in a broad context of central banking

taking place over the centuries. so even though we are going to be focusing a good bit of the electors next week on the financial crisis and how the fed responded, i feel we need to go back and look at the broad context. so, as we talked about the fed, we will be talking about the mission of the central bank's congenital, and we will be looking at the previous financial crises most notably the great depression and see how that informs the actions and decisions in the recent crisis. let me just give you a road map of the lectures. today we will touch on the current crisis that says we will talk about the central banks are and what they do, how the central banking got started in the united states and with history we will talk about how the fed engaged in its first great challenge to the great depression of the 1930's. the second lecture on thursday will take up the history and review the developments in the

central banking and the federal reserve talking about the conquest of inflation the great moderation and other developments that occurred after world war ii but we will spend a good bit of time talking about the buildup to the crisis some of the factors that led to the crisis in 2008, 2009. next week we will get into the more recent event and talk about the intense phase of the financial crisis and its cause of the implications particularly the response to the crisis on the federal reserve and my other policy makers. and then in the final lecture we will get the aftermath and talk about the recession that followed the crisis, the policy response in the fed including monetary policy, the broad response in terms of the changes in the financial regulation, and a low the forward-looking

discussion about how this experience will change how central banks operate and how the federal reserve will operate going forward. this is our topic today is origins and missions of the federal reserve. let's talk in general about the central bank is. if you have had a background in economics you know that a central bank is not a regular bank it's a government agency and it stands at the center of the monetary financial system of the country. central banks are a very important institution. they have helped guide the development of the modern financial systems, modern monetary systems and play a major role in economic policy. now, we have had various arrangements over the years, but today virtually all countries have central banks. the federal reserve and the united states from the bank of canada and so on. the main exception is only the cases where you have as a currency union remember of countries collectively shared

the central bank. the most important example by far of that is the european central bank which is central bank to 17 european countries who have shared the common currency, but even in that case, each of the participating countries does have its own central bank which is a part of the overall system. so central banks are now ubiquitous. even the smallest countries typically have central banks. this is a very important theme. what do the central banks do, what is their mission? as i will discuss throughout the lecture, it is convenient to talk about the broad aspects of what central banks do. the first is to try to achieve macroeconomics devotee. and by that, i generally mean stable growth in the economy avoiding big swings, recessions and the like and keeping inflation low and stable, so that's the economic function of

a central bank. the other function as central banks, which is going to be a lot of attention obviously in these lectures is the financial stability functioned. central links try to keep the financial system working normally and in particular, they try to prevent or if unsuccessful in preventing the try to mitigate financial panic or financial crises and i will talk about more with those are. what are the tools central banks use to achieve the two broad objectives? in a very simple terms they're basically a broad set of tools. on the economic stability side, the main tool is onshore as everybody knows monetary policy. in normal times, the fed for example can raise or lower short-term interest rates. it does that by buying and selling securities in the open

market. and again, in normal times if the economy is growing too slowly or inflation is falling too low, the fed can stimulate the economy by lowering interest rates, lowering interest rates through to a broad range of other interest rates. that encourages spending acquisition of homes for example destruction come investment by firms, borrowing. it generates more demand, spending, investment in the economy, and that creates more thrust and growth so that is to stimulate an economy you lower interest rates thing. if the economy is growing too hot, inflation is becoming a problem, then the normal tool of the central bank is to raise interest rates. so, buy raising the interest rate, in the united states the federal fund rate, higher interest rates see to the system and help to slow the economy by raising the cost of borrowing of

buying a house and buy a car or investing the capitol goods and that will slow the economy and reduce the pressure of overheating. so the modern trade policy is the basic tool the central banks have used for many years to try to keep the economy on a more or less even keel in terms of both growth and inflation. now come a little less familiar is the main tool of the central bank's dealing with financial panic in financial crises. that tool is the provision of liquidity. succumb to address financial stability concerns and reasons i will explain when things they can do is to make the loans to the financial institutions through the financial institutions during the period of panic or crisis and help, the marketing to stabilize the institutions and for the catering to an end to the

financial crisis. this activity as an old 1i will discuss this loan has been the lender of last resort tool. so again, if the financial markets are disruptive, financial institutions don't have alternatives source of funding in the central bank stands ready to serve as a lender of last resort providing liquidity to the system and helping to stabilize the financial system. there's a third tool from the beginning in most central banks have which is the financial regulation and supervision. central banks usually play a role in supervising the banking system, assessing the extent of riss, portfolio making sure the practices are sound, and that way trying to keep the financial system healthy to the extent of financial system can be kept healthy and its risk-taking within a reasonable ground, then the chance of a financial crisis

occurring in the first place is reduced. however, this activity, i will come back to, this is something that isn't unique to central banks in the united states for example there is a number of different agencies like the fdic or the office of the currency that york with the fed in supervising the financial system. ..

and france in 1800. so central-bank theory and practices, again, not a thing. we have been thinking about these issues collectively as an economics profession and in other contexts for many, many years. now, i have exaggerated slightly in the sense that say the bank of england in 1694 was not set up from scratch as a full-fledged central bank. it was originally a private institution. over time it acquired some of the functions of the central bank such as issuing money were serving as lender of last resort. but over time these central banks became essentially government agencies, government institutions as the dollar today. one important responsibility of central banks for much of the. i am talking about is to manage

the gold standard, to issue money that was backed by gold. i will talk more about gold and a few moments. now, the lender of last resort function which i mentioned earlier became important in the -- mostly in the 19th century, early in the 19th century the bank of england was doing a lot of this type of activity. they became very good at it. as we will see, while the united states was suffering with banking panics for the latter part of the 19th century, banking panics in the united kingdom were quite rare periods of the bank of england sort of set the pace in some sense. it was the most important central bank, and it helped establish the practices and the approaches that we still used today. now, i need to talk a little bit because it is less familiar about what a financial panic this. in general a financial panic is

sparked by a loss of confidence in an institution. and i think the best way to explain this is to use a familiar example. how many of you have ever seen the movie, it's a wonderful life? was people are watching christmas movies than they used to be a guess. well, one of the problems that jimmy stewart runs into as a banker in a wonderful life is a threatened run on his institution. what is a run? well, in this imagine a situation like jimmy stewart, before there was any deposit insurance, no fdic. imagine you have a bank on the corner, regular commercial bank. the first bank of washington d.c. this bank makes loans to businesses and the like. it finances itself by taking deposits from the public and deposits are demands deposits which means that anybody can

pull up their money anytime they want, which is important is people use deposits for ordinary activities like shopping. now, imagine what would happen if for some reason a rumor goes around that this bank has made some bad loans and is losing money. now as a depositor s.a., another of the sister or not. what i know is if i wait and everyone else pulls up their money in of the last verse i may end up with nothing. you're going to get to the bank and say and not sure this is a true rimmer not. i'm going to pull money out. and so depositors lined up. the pull out there cash. no bank holds cash equal to all their deposits. they put that cash into loans. the only way they can pay off depositors is to sell or otherwise dispose of its loans.

but it's very hard to sell the commercial loan. yet to sell the discount. by the time you got around to doing that depositors are at your door saying, where's my money. so ultimately a panic can lead the bank to close and be a self-fulfilling prophecy. the bank will fail. it will have to sell off its assets at a discount price. ultimately depositors might lose money as happened in the great depression, for example. so a bank panic is a problem faced by any institution where it has loans or other illiquid type assets and is financing itself by short-term deposits or other short-term lending. now, panics can be a serious problem. obviously if one bank is having problems people at the bank next door might begin to worry about problems in their bank. and so the bank run can lead to

widespread bank runs or a banking panic more broadly. sometimes banks, again, pre fdic banks would respond to a panic or run by refusing to pay up deposits. it would just say, no more. we are closing the window. that restriction was another bad outcome and cost problems for people who had to make a payroll or buy groceries. many banks would fail. beyond that, banking panics often spread into other markets and were often associated with stock market crashes, for example. all those things together, as you might expect, or bad for the economy. a banking panic could lead to a crash in the economy as well. so, here is a formal definition just for your reference. unless you see people standing around the corner waiting to take up the money. a financial panic can occur at any time you have an institution

that has longer-term illiquid assets. a bank that has lows that a long-term loans that are really good in the sense that it takes time and effort to sell those loans. which are financed on the other side of the balance sheet by short-term liabilities like deposits which could be. anytime you have that situation you have the possibility that the people who put their money in the bank or lenders and depositors may say, would the minute. i don't want to leave money here. and pulling it out. you have a serious problem for the institution. so now, to come back to what we were talking about before, how can the fed have helped to make well, again, lender of last resort is the basic tool. imagine that jimmy stewart is paying out the money to his depositors. he has plenty of good loans, but he can't change those in to

cash. he has people at the door looking for money. well, if the federal reserve was on the job jimmy stewart could call up the local fed office and say, look, i have a whole bunch of bad loans. i can offer them as collateral. give me a cash loan against as collateral. so the central bank will act in this way as a lender of last resort. did jimmy stewart can take the cash from the central bank. he can pay off his depositors. then so long as he really is solvent, as long as his loans really are good the run will be quelled, stopped, and the panicle come to an end. so by providing short-term loans taking as collateral the illiquid assets of the institution as central bank and put money into the system, pay off depositors, pay off short-term lenders, and called the situation in the panic. this was something that the bank of england figured out very

early. in fact, of very key person, intellectual development, a journalist named walter bagehot who thought a lot about banking, central banking policy. he had a dictum which said that during the panic central banks should lend freely. whoever comes to your door as long as they have collateral. give them money. this is during the banking panic . against good assets to make sure that you get your money back in need to have collateral, and the collateral has to be good or it has to be discounted and you didn't have the value of the collateral, for example. charge a penalty interest rates of the people don't just take advantage of the situation. rather, they signal that they need the money because they're willing to pay a slightly higher interest-rate. so, again, if you follow this rule you can stop the financial

panics. as a bank or other institution finds that it is losing its funding from depositors or other short-term lenders, it borrows from the central bank. the central bank provides cash loans against collateral. the company then pays off its depositors and, again, things calmed down. without the source of funds among without that lender of last resort activity many institutions would have to close their doors, go bankrupt. if they had to sell their assets at discount fire sale prices that would also create problems. other banks to fund the value of their assets of downtown so it is very important to get in there aggressively as the central banker, provide short-term liquidity, and avoid a collapse or leased to the serious stress on the system.

so, again, using the assets of collateral banks borrow from the central bank. so that is a little bit of general theory of the central banks and what they do. too broad functions, macroeconomics stability and financial stability. they have tools on both sides of that equation. so let's talk little about specifically the united states and the federal reserve. what we will find is that the federal reserve which was founded, the law was passed in 1913. it was founded in 1914. we will find that concerns on both sides of this equation motivated the decision of congress and president wilson to create the federal reserve. let's talk first about financial stability in the as states. now, after the civil war and into the early 1900's there was no federal reserve. there was a central bank.

so any kind of financial stability function that cannot be done by the treasury had to be done privately. there were some interesting examples of private a chance to create lender of last resort functions. for example, a very interesting example is the new york clearing house. the new york clearing house was a private institution. it was basically a club of ordinary commercial banks in new york city. and it was called a clearing house because in this life it was -- it served as a place where banks could clear checks against each other. they came at the end of the stay and traded, you know, my checks against your, your text against me, and it was just the way of reducing the cost of managing checking. but as time evolves clearing houses began to function a little bit like central banks. for example, if one bank came under a lot of pressure the other banks might come together in the clearing house and lend

money to that banks have to pay its depositors. in that respect to serve as a lender of last resort. the other possibility was sometimes the clearing houses at all agree there will shut down the banking system for a week. all banks. then they would -- it would go look at the bank that was in trouble and evaluate its balance sheet and determine whether it was in fact a sound bank. if it was it would reopen in normally that would calm things down. there was some private activity to try to stabilize the banking system. however, in the end these has a private arrangements are just not sufficient. it did not have sufficient resources. that did not have the credibility of an independent central bank fair. after all, people could wonder whether the banks for acting in other than the public interest, if there were all private institutions. and so it was necessary for the u.s. is to get a lender of last

resort that could stop runs on illiquid or insolvent commercial banks. so this is not a hypothetical as you. financial panics in the united states for a very big problem. here is the time basically from the restoration of the gold standard after the civil war in 1879 to the founding of the federal reserve. a graph here shows the number of banks closing during each of the six major banking panics that occurred during that time in the united states. you can see, in a very severe financial panic, 1893, more than 500 banks failed across the country. that was a big panic. significant consequences for the financial system and for the economy. 1907 was also a pretty sharp financial crisis. the banks that failed were

larger. and it was after that crisis that congress began to say, well, wait a minute. maybe we need to do something about this. maybe we need a central bank, a government agency that can address the problem of financial panics. so that process began. there was a very substantial amount of research done. twenty-three volume study was prepared for the congress about central banking practices. and congress moved deliberately toward creating a central bank. before the new central bank was established there was another serious financial panic in 1914. as you can see, this really was a very serious problem for the u.s. economy. so financial stability concerns or a major reason why congress decided to try to create the central bank in the beginning of

the 20th-century. the other major mission of central banks is economic stability, monetary and economic stability. now, the monetary history of the united states is very complicated. i will try to get through it all, but in the. after the civil war toward until world war one and then really all the way into the 30's, the united states was on a gold standard. as you probably know, a gold standard is at least a partial return to to a central bank. what is a gold standard? what a gold standard is is a monetary system in which the value of the currency is fixed in terms of gold. so for example by law in the early 20th-century the price of gold was set at $20.607 an ounce

. there was a fixed relationship between the dollar and certain weight of gold. and that in turn helps said the money supply, it helps set the price level in the economy. the worst central banks held to nine is the gold standard, but to a significant extent a true gold standard creates an automatic monetary system. basically money is tied to gold. now, unfortunately gold standards are far from perfect monetary system's. one small problem which is not on the slide, but i'll just mention is that there is an awful big waste of resources. what you have to do to have a gold standard is go to south africa or someplace in dagen tons of gold and moved to new york and put it in the basements that is a lot of effort a very

expensive cost of the gold standard. all this goal was being dug up. put back into another hole. there is some cost to having a gold standard. there are some other more curious financial and economic concerns that are practical and show where part of a gold standard. one of them was the effect of a gold standard on the money supply. since the gold standard determines the money-supply there's not much scope for the central bank to use monetary policy to stabilize the economy. and in particular under a gold standard to believe the money supply goes up and interest rates go down in strong economic times. that is the reverse of what a central bank would normally do today. so, again, because he had a gold

standard which tied the money supply to gold, there was no flexibility for the central bank to lower interest rates and recession or raise interest rates and inflation. now cause some people view that as a benefit of the gold standard, taking away the discretion from central banks. there is an argument for that, but it to have the implication that there was more volatility year to year in the economy under a gold standard and there has been in modern times. so, for example, movement in output. year to year movements in inflation, volatility was much greater. and the gold standard. there were other concerns also with the gold standard. one of the things that a gold standard does is create a system of fixed exchange rates between the currencies of countries that are on the gold standard.

for example, in 1900 the value of a dollar was about $20 per ounce of gold. roughly four british pounds per ounce of gold. $20 sepals 1 ounce of gold. 4 pounds it was once a gold. $20 equals 4 pounds. basically that the pound is $5. so essentially if both countries are on the gold standard the ratio of prices between the two exchange rates is fixed. the arrow can go up in the arrow can go down. now, again, some people would argue that is beneficial. there is at least one problem. if there are shocks are changes in the money supply in one country, perhaps even a bad set

of policies, other countries that are tied to the currency of that country will also experience some of the effect of that. so, give him honor example. today as the public know china ties its currency rate to the dollar. it's flexible, but there is a close relationship. now, what that means is that if the fed lowers interest rates and stimulate the u.s. economy because their recession, it means also that essentially monetary policy becomes easier in china as well because interest rates have to be this same in different countries with essentially the same currency. and those low interest rates may not be appropriate for china. as a result, china may experience inflation because it is essentially tied said u.s. monetary policy. so fixed exchange rate between countries tend to transmit both good and bad policies between

those countries and take away the independence that individual countries have to manage their own monetary policy. yet another issue with a gold standard has to do with speculative attack. now, normally a central bank with a gold standard only keeps a fraction of the gold necessary to back the entire money supply. indeed, the bank of england was famous for keeping a thin film of cold, the british central bank only kept a small amount of gold and relied on their credibility to stand by the gold standard under all circumstances to -- so that no one ever challenged them about that issue but if -- for whatever reason if markets lose confidence in your willingness, in your commitment to maintaining ethical standard relationship you can get a

switch of attack. this is what happened in 1931. speculators lost confidence that the british pound withstand cold. like a run of bank they all but their pounds. give me gold. did not take them very long before the bank of england was out of gold. there was a lot of financial volatility created by this attack and the gold standard. there is a story told that a british official, a treasury official was taking a bath. an aide came running in saying we're of the gold standard. and he said tonight to know we could do that. [laughter] they could command they had to. they had no choice because there was suspected of attack on the pound. moreover, and related to this as

we saw in the case of the united states, the gold standard has plenty of financial panic associated with it. some financial stability was not always assured by the gold standard. finally one last word. one of the strengths is that it creates a stable value for the currency. it creates stable inflation. that is true over very long time over shorter times, maybe up to five virginias you could actually have a lot of inflation, rising prices, or deflationary, falling prices in the gold standard. and the reason is that in a gold standard the amount of money in the economy varies according to things like gold strikes. for example, if the united states chemical was discovered in california, the amount of gold goes up, that will cause inflation.

if the economy is growing faster and they're is a shortage of gold, that will cause a deflationary. over shorter time frames he frequently had both inflation and deflation. over a very long amount of time but decades, prices were stable. now, this again was a very significant concern the united states. a famous figure, a very good public speaker. wame -- when jennings bryan, three-time democratic candidate for president. in the latter part of the 19th century there was a shortage of gold relative to the economic growth. and since there wasn't enough gold in some sense, it's a buy was shrinking relative to the economy, the u.s. economy was experiencing a deflationary. that is prices were gradually falling. now, this caused some problems. and the people who were most concerned about it work farmers

and other agriculture related occupations. think about this for a moment. if you are a farmer in kansas and you have a mortgage with the bank and a mortgage requires a fixed payment of $20 each month, the amount of money have to pay is fixed. how do you pay that can make you pay it by growing your crops and selling the crops to market. now, if you have a deflationary going on that means the prices of your corner where cotton wear green is falling over time. your payment to the bank stays the same. so a deflation created a grinding pressure on farmers as they saw the prices of their product going down and as their debt payments remained unchanged and so farmers were squeezed by this decline in their car prices they recognized that this

deflationary was not an accident. inflation was being caused by the gold standard. and so when jennings bryan ran for president. his principal platform the need to modify the gold standard. in particular he wanted to and silver to the metallic system so that there would be more money in circulation and more inflation. he spoke about this in the usual very eloquent way in 19th century or raiders. he said we shall not press down upon the brow of labor, this crown of thorns. you shall not crucify man kind upon the cross of gold. again, what he was trying to say is that the gold standard is killing honest hard-working farmers who are trying to make their payments to the bank and find the price of their crops going down over time. so the gold standard also created problems and again was a

motivation for the founding of the federal reserve. in 1913 finally after all the study congress passed the federal reserve act which established the federal reserve which opened in 1914. there is a picture was of president woodrow wilson signing the federal reserve act in 1914. president wilson viewed this as his primary most important domestic accomplishments in his term. so again, why did they want a central bank? the federal reserve act of on the newly established fed to do two things. first, serve as a lender of last resort and try to mitigate panics that banks were experiencing every few years. secondly, to manage the gold standard, that is to take the sharp edges of the gold standard

to avoid sharp swings in interest rates and other macroeconomic variables. that was the objective of the federal reserve. now, interestingly the fed was not the first attempt by congress to create a central bank. there had been two previous attempts. one of them, suggested by alexander hamilton in the second -- somewhat later in the 19th century. in both cases congress let the central bank died. basically the problem was that there was a lot of disagreement between what today we would call main street and wall street. the folks on main streets could include farmers, for example. they feared that the central bank would be mainly an instrument of the money interest in the york and philadelphia and would not represent the entire country, would not be a national central bank.

both the first and the second attempts at creating a central bank failed for that reason. woodrow wilson had a better idea, and he tried different approach. what he did was he created not just the single central bank in washington, but he created 12 federal reserve banks located in major cities across the country. the picture shows a 12 federal reserve districts that we still have today. each one has a federal reserve bank in a. and then a board of governors which oversees the whole system is in washington d.c. notice, by the way, how many of the little black dots to the right. in 1914 most of the economic activity in the united states was in the eastern part of the country. now, of course, it is much more even. reserve banks are in the same locations that were in 1914. it -- the point here, the value

of this structure was again creating a central bank where everybody, all parts of the country would have a voice and where information about all aspects of our national economy would be heard in washington. that is, in fact, still the case when the fed makes monetary policy it takes into account the views of the federal reserve banks around the country. we have a national approach to making policy. the fed was established in 1914. for while life was not too bad. the roaring '20s, and 1920's, the charleston, i think. life magazine. you never heard of that. a very famous magazine for a long time. anyway, 1920's, the so-called during 20's was a time of

great prosperity in the estate's the u.s. was absolutely dominant to subdominant economy because most of europe was still in ruins from world war one. there were lots of new inventions. people gathered around the radio . automobiles became much more available. a lot of new consumer durables and a lot of -- a lot of economic growth during the twenties. so that was, again, a town of prosperity, particularly in the united states. the fed had some time to get its feet wet and establish its procedures. unfortunately in 1929 the world was hit by the first great challenge to the federal reserve and solid u.s. economic policymakers which was the great depression -- great depression. as i'm sure you know the u.s. stock market crashed in october

october 29. but you may not know is that the financial crisis of the great depression was not just the u.s. phenomenon. it was global. large financial institutions collapsed in europe and other parts of the laurel. perhaps the most damaging financial collapse was a large austrian bank that collapsed in 1931 and brought down with it many other banks in europe. so it was a global phenomenon. as you know, of course, the economy contracted very sharply. the depression lasted for it seems like an incredibly long time, from 1929. it only ended when the united states entered the war after pearl harbor in 1941. so here are a few facts about the depression. i think it's important to understand have deepened severe this episode was. here is the stock market.

you can see this straight line that the left vertical line show in october 1929, the very sharp decline in stock prices unsurprisingly. this was the crash that was made famous by many writers, including john tennant and others who told colorful stories about brokers jumping out of windows and all those things. one of worry to take about this picture is that the crash of 29 was only the first up in what was a much more serious decline. he see how the stock prices kept falling. by mid 1932 stock prices had fallen an incredible 85% from their peak. so this was much worse than just a couple of bad days in the stock market. the rural economy, the nonfinancial economy also suffered very greatly. the left-hand picture shows growth in real gdp. so if the bar is pointing up, it

is a growth. pointing down, a contraction. since 1929 the economy grew by more than 5%. still growing very substantially, but you can see that from 1930 to 1933 the economy contracted by very large amounts every year. so an enormous contraction of gdp, close to one-third overall between 1929 and 1933. at the same time the economy was experiencing deflation, deflationary is falling prices. as you can see, from the right picture in 1931 and 1932 prices fell by about 10%. so if you were a farmer that had trouble in the 19th century, imagine what's happening to you in 1932 when crop prices are dropping by have for more and you still have the same payment to the bank for your mortgage.

as the economy contracted, unemployment soared. we did not have this same survey of individual households in the 1930's that we have today. these numbers are estimated. they are not precise. but as best we can tell at its peak unemployment came close to 25% in the early 1930's. you can see the light blue line is the recession. even at the end of the 30's before the war changed everything on a plan was still around 13%. so unemployment rose tremendously. bank failures, as you might guess, with all that was going wrong in the economy a lot of depositors ran on their banks. the picture on the right, the graph on the right shows the number of bank failures. you can see, an enormous spike in the early 30's in the

number of failures. what caused this colossal calamity which again i would reiterate was not just the u.s. problem but a global problem. one country that had the worst depression than the united states was germany. that led probably more or less directly to the election of hitler in 1933. so why was there -- what happened? what caused the great depression? this was a tremendously important subject and it has received a lot of attention as you might imagine from economic historians. as is often the case for large events, there are many different causes. i mention a few here. repercussions of world war one. problems of the international gold standard which was being reconstructed with a lot of problems after world war one. the famous double with stock prices in the late 1920's. the financial panic that spread through the world.

there are a number of factors that created the impression. but the one that i want to focus on here -- let me say one more word before turning on. part of the problem was intellectual rather than policy perce. at the time of the 1930's there was a lot of support for an approach were thinking about the economy called the liquidation this theory. and the idea behind it was the 1920's was too good a time. the economy expanded too fast. there was too much growth. too much credit extended. stock prices went to high. so what you need when you have access is deflation. all the excess is are squeezed out. so a point of view said that depression was unfortunate but

necessary. we have this month that the excess. the same by andrew mellon. hoover secretary of the treasury liquidate labor, liquid stock, liquidate the farmers cannot liquidate real estate. it sounds pretty hard. what he was trying to convey here was that we have to get rid of all of the excesses of the '20s and bring the country back to a more fundamental plus sound economy. all right. so what i want to get into here in the last few minutes is what was the fed doing during this time? unfortunately the fed made its first great challenge in the great depression and failed. both on the monetary policy side and on the financial stability side. on the monetary policy side bottom line here is that the fed did not ease monetary policy the way you would expected to in

deep recession. for a variety of reasons because it wanted to stop the stock market speculation. wanted to maintain the gold standard is a bullies in liquidation theory. for a variety of reasons the fed did not ease monetary policy or at least not very much. and so we did not get the offset to the decline that monetary policy could have provided. indeed, what we saw was a sharply falling prices. i mean, you can argue about causes of the decline in output and employment. when you see tim% decline in the price level in a monetary policy is much too tight. so deflation was in fact an important part of the problem because, again, it bankrupt farmers and others who relied on the sale of products to pay fixed debts. to make things even worse, as i

mentioned before, if you have a gold standard the exchange rate, the fed policy was essentially transmitted to other countries which also essentially therefore came under excessively tight monetary policy. that also contributed to the collapse. one reason why the fed kept money tight was because it was worried about a suspected of attack on the dollar. 1931 the british had faced that situation. the fed was worried that there would be a similar attack that would drive the dollar of cold. to preserve the gold standard they raised interest rates rather than lower them. they argued by keeping interest rates i it would make u.s. investment attractive and prevent money from flowing out of the united states. again, that was the wrong thing to do relative to what the economy needed. in 1933 franklin roosevelt abandoned the gold standard. suddenly monetary policy became much less tight. there was a very powerful

rebound in the economy and 33 and 34. the other part of the fed responsibility, of course, is to be lender of last resort. once again the fed did not need it -- meet its mandate. they responded inadequately to the bank run allowing essentially this tremendous decline in the banking system with many banks failed. as a result bank failures of the country. as i mentioned before, a very large faction of the nation's banks failed. almost an thousand. and that continued until deposit insurance was created in 1934. now, why did the fed not more aggressively be lender of last resort? why did it lead to these they let -- failing banks? in some cases the banks were insolvent and not much could be done. they had made loans in agricultural areas that were

going bad. part of it was the fed appeared at least to some extent to agree with the liquidation is. what said there is too much credit. we are overbanked. let the system contract. that was and forged -- unfortunately not the healthy thing. of course and 33 franklin roosevelt came into power. roosevelt had a mandate to do something about the depression. he had a variety of different actions. very experimental. some of those actions were quite unsuccessful. for example, somebody called the national recovery act required, tried to fight -- by deflationary by requiring firms to keep prices high. that was not going to help without a bigger money supply. so a lot of things that resulted

did not work so well. he did two things which i would argue did a lot to offset the mistakes and problems that the fed created. the first was in 1934 the establishment of deposit insurance and the ftse. now if you are a ordinary depositor in a bank and the bank fails he still get your money back. therefore there was no -- there was no incentive to run on the bank. in fact, once deposit insurance was established the we went from literally thousands of bank failures to zero. it was incredibly effective. the other thing that fdr did, although he took a lot of smoke and basically he abandoned the gold standard. but during that he allowed monetary policy to be released and allowed expansion of the money supply which ended the deflationary and led to a powerful short-term rebound in 33 and 34.

so the two most successful things the roosevelt did work essentially offsetting the problems that the fed created or at least exacerbated by not fulfilling its responsibilities. so the policy lessons, it was a global depression, had many causes. the whole story requires you to look at the whole international system. but policy in the united states as well as abroad did play an important role. in the particular, as i said, the federal reserve failed in the first challenge in both parts of its mission. it did not ease monetary policy aggressively in the collapse of the economy. it failed in the economic stability function. it did not adequately perform its function as lender of last resort allowing many bank failures and a resulting contraction in credit and also in the money supply. so in that respect, again, the

fed did not fulfil its intended mission. so these are key lessons. we want to keep these in mind as we consider how the fed responded to the 2008 and 2009 financial crisis which we will be getting to the beginning of next time and in great detail next week. so next time on thursday we will review developments in central banking after world war two. we will spend plenty of time next time in the lead up to the crisis of 2008-2009. and we will begin to see how the history of central banking explains how the federal reserve responded to this most recent severe crisis. okay. i'd be happy now to take questions on the lecture. yes. michael. >> you mentioned the policy in

1920 and 29. to do you think that. [inaudible] take any action at all? >> that is a good question. but the said -- i think the mistake they made, they were very concerned about the stock market and believe that it was excessively priced. there was evidence for that. but what they did, they attacked it by raising interest rates without attention to the effect on the economy. by raising interest rates they wanted to bring down the stock market. they succeeded, of course. but the side effect of it was that also it have major impact on the economy as well. i think -- yeah. i think we have learned about asset price bubbles, they are dangerous. we want to address them. but where you can address them

through financial regulatory approaches, that is usually a more pinpointed approach than just raising interest rates for everything. some margin requirements or at least looking at the variety of practices, there were a lot of very risky practices of brokers. it was the equivalent of day traders. at every interval i had a tip for you. there were not very many checks and balances on trading and who can make a trade at what margin requirements work. so it's a good question. i think that the first line of attack should have been more focused on bank lending, financial regulation and the functioning of exchanges. take the -- >> the question. everything that we know of monetary policy and the economy,

why is this still an argument for return to the gold standard and is it even possible jack. >> so, the argument i think has two parts. one is the desire to maintain the value of the dollar. basically it is a desire to have very long run price stability. so the argument is that paper money is inherently inflationary a gold standard. and as i said, that is true to some extent over a long time. from a year to year basis it is not true. and so looking at history is helpful. the other reason i think that the gold standard advocates want to see a return to gold is that it removes discretion. it does not allow the central bank to respond with monetary policy.

for example, to the bones and busts. and the advocates of the gold standard say it is better not to give that flexibility to a central bank. those are basically the arguments. i think, though, that the gold standard would not be feasible for both -- for both practical reasons and policy reasons. on the practical side there is just the simple fact that there is not enough gold to me the needs of a global gold standard. and achieving that much gold would be very expensive. it would cost a lot of resources. more fundamentally than that is that the world has changed. for the reason, the reason the bank of england could maintain the gold standard, even though it had a very small amount of gold reserves was that everybody knew that there were going to -- that the first and second, third, and fourth prairie was staying on gold and they had no interest in any other policy objective.

but once there was concern that bank of england might not be fully committed then there was suspected attack that drove them off gold. now, economic historians argue that after world war one the labor movement took -- became much stronger. a lot more concern about unemployment. before the 19th century people did not even measure unemployment. after will or one you began to get much more attention to unemployment and business cycles so in the modern world the commitment to the gold standard would mean that we are swearing that under no circumstances no matter how bad unemployment gets are we going to do anything about it. and if investors had 1 percent out that we would follow that promise it would have every incentive to bring their cash and take up cold and it would be as a propellant -- self fulfilling prophecy. we have seen that problem with

fixed exchange rates that have come under attack. i understand the impulse, but i think if you look at actual history you will see that the gold standard did not work that well. it worked particularly poorly after one. indeed, well, i've won't go into it. there is a good bit of evidence that the gold standard was one of the main reasons that the depression was so deep and long. a striking fact is that countries that left the gold standard early and gave themselves flexibility on monetary policy recovered much more quickly than the country's the state on goal to the bitter end. >> you mentioned that president roosevelt used deposit insurance . the coast and it to help the inflation. 1936 and 1937, their session.

you were sort of out of the recession. what you think, we need to be careful. the great depression. >> right. it isn't generally appreciated. the great depression was to of the great depression was to recessions. a very sharp recession from 33 to 37 there was actually a decent amount of growth. the stock market recover some. but in 37 and 38 there was a second recession that was not quite as serious as the first, but still serious. and it it would take awhile to get through all the discussion, but they're is a lot of controversy. the one view that was advanced early on was that the second recession came from a printer tightening of monetary and fiscal policy.

so and 37 and 38 there was roosevelt under a lot of pressure to reduce budget deficits and so on and tighten fiscal policy quite a bit. the fed worried about inflation, tight monetary policy. now, again, i don't want to climb it is all that simple. a lot was happening, but the early interpretations at least were that the reversal of policy happened to send and prevented the recovery from proceeding faster. i think -- we will talk about lessons later on, but i think if you except that traditional interpretation it is that you need to be attentive to where the economy is and not move too quickly to reverse the policies that are helping the recovery. >> yes.

other historical fronts. the recovery often takes. [inaudible] the great depression. i was wondering, to think it uncommon for unemployment to remain at high levels? and moreover, your concerns in a political environment? >> well, let me just comment. the depression was the sort of a stir very event. there were many serious declines in economic in activity in the 19th century, but nothing quite as deep or quite as long as the great depression. so the high unemployment that lasted from 1929 until basically world war ii, that was unusual.

so we wouldn't conclude that that was a normal state of affairs. now, more generally there is some research that suggests that following a financial crisis that may take longer for the economy to recover because you need to restore the health of the financial system. that may be one reason so argued that the recovery, the most recent recovery is not proceeding faster than it is. but that is i think still an open question. there is a lot of discussion about that research as well as discussion of what might underline that sort of stylized tack that is out there. so it's not always the case. if you look at recessions in the postwar time in the united states, we see very frequently the recoveries only take a couple of years. but in fact very sharp recoveries -- recessions are

typically followed by a faster recovery. what may be different about this episode, and this is a subject of debate, unlike the other recessions this one was related to an triggered by a global financial crisis. so it may be that it is going to take longer. it is already taking longer for the economy to recover. again, a lot of issues still to be resolved. last question. anyone else? melanie. >> global the precious. global cooperation. every country. >> well, you set me up perfectly for my election next week. i will talk about how the fed

and other central banks to cooperate and continue to cooperate. one of the problems in the depression was the bad feelings left over from world war one. in the 19th century there was a reasonable amount of cooperation among central banks. but in the 1920's germany was facing how to pay reparations. france and england, the u.s. of bickering about war debts. and so the politics was quite bad internationally. that impede its some of the operation of central banks. the other thing to say is that international central bank corporation is probably even more important when you have fixed exchange rates. you have fixed exchange rates in the twenties because of the gold standard which meant that monetary policy in one country affected everybody. that was certainly the case for more coordination, did not get it. at least today we have flexible

exchange rates which can adjust and tends to insulate other countries from the effects of monetary policy in a given country. so that reduces somewhat the need for coordination. there is still a need for coordination. this is great. i will be back on thursday. thank you. [applause] >> well, we are just about out of time at 2:00. i told my friends that the fed as we were setting this up, we thought that we might have to our 15 minutes for question and answer after the chairman left. i said, this is an old professor. once again up there he bought a good time at a live q&a that it goes on for a while. great questions. wonderful questions. ..